As a former financier, Rishi Sunak knows that money talks. And after Wednesday’s grim economic growth figures prompted traders to dump sterling, the chatter in the City is once more about fears of a UK recession.
The fall in gross domestic product (GDP) by 0.3 per cent in October was much worse than the zero growth the markets had expected, and down from a 0.2 per cent expansion in September.
After the economy flatlined over the summer, the statistics show it has started the autumn on a downward trajectory – and it will take a serious bounceback to get into positive territory.
If things fail to seriously improve in the first three months of 2024, it’s even possible that we will be in “technical recession” (defined as two consecutive quarters of negative growth).
Paul Dales, chief UK economist at Capital Economics, said: “The economy may go nowhere again in Q4 or perhaps is in the mildest of mild recessions.” JPMorgan also revised down its numbers and is now predicting no growth for the remainder of the year.
With the Bank of England due to set interest rates on Thursday, it’s no wonder the City is jumpy. But nerves may be jangling in Downing Street too. That’s because one of Sunak’s “five immediate priorities” for 2023 was “we will grow the economy”.
Number 10 has already said that that pledge will be met if GDP between October and December is higher than the zero it was between July and September. Yet that expected slam-dunk no longer looks certain at all.
The PM will be desperately crossing his fingers for a bumper consumer Christmas to meet even his own promise on his own terms. Yet the pain of higher interest rates is really being felt among both individuals and businesses.
As befits his “spreadsheet Sunak” reputation, the PM really sets great store in statistics. That’s why he was particularly delighted in September, when the Office for National Statistics revised its numbers to reveal a different narrative of the UK economy in recent years.
Far from the UK lagging behind similar countries as we came out of the Covid recession, its growth was similar to its main rivals and the third best in the G7. Only on Tuesday, Number 10 also pointed out that the UK had grown faster overall than France and Germany since 2010.
In the final Prime Minister’s Questions of the year, Sunak’s irritation with previous financial forecasting was apparent. He didn’t disagree with Tory backbencher Greg Smith’s assessment that the Office for Budget Responsibility (OBR) has been “habitually wrong”.
The PM used the question as a chance to boast about some of his other pledges for 2023, declaring “we have halved inflation and controlled borrowing”. But by omission, he gave the game away about Government nervousness on growth, neglecting to say anything about growth or whether he’d met his target.
When the PM’s spokesman was asked directly whether he worried that the UK was heading for recession, he replied: “We would never speculate on future predictions.” Curiously, he then did exactly that, quoting an IMF forecast that Britain would have the third-fastest growth of the G7 between 2025 and 2028.
Unfortunately for the Conservatives, 2025 will feel a long way away for the public. And while we must all hope the UK will avoid a recession in the coming months (it is also a mug’s game predicting one, as many economists and politicians have found to their cost), the political problem is the public isn’t feeling economically happy right now.
It’s not the R-word of recession, but the S-word of stagnation that many voters are experiencing. Only this week, pay growth (seen by ministers as a key indicator) slowed as those interest rates bit harder.
The Resolution Foundation analysis shows that Britain’s economy has grown by only 0.5 per cent in the past 18 months, which is the weakest pace of growth outside a recession.
Things could get even worse in 2024, with the Bank of England warning that the housing market has yet to feel the full force of its rate rises and some 45 per cent of mortgage deals yet to renew.
The other key problem is the internal contradiction between Sunak’s pledges to cut inflation and boost growth. After those worrying growth figures, Jeremy Hunt said it was “inevitable GDP will be subdued whilst interest rates are doing their job to bring down inflation”, but that sounded dangerously like John Major’s “if it isn’t hurting, it isn’t working” mantra.
Jeremy Hunt is right that his national insurance cuts and his business tax cuts could finally inject some life into our growth figures, with the OBR predicting they will add 0.5 per cent to GDP. But again, that may not happen in time for the next election.
What makes things worse is that Sunak himself often sounds robotic in response to real-world worries like being able to afford everyday bills, let alone Christmas presents, amid a cost of living crisis.
When Keir Starmer raised the plight of a boy in temporary accommodation during PMQs, the PM was at his most tone deaf, pivoting to a line about Labour’s voting record in the House of Lords, rather than talking about his failure to build more housing.
Given that a big fall in the construction sector was a key part of the latest growth contraction (driven by a drop in new building projects and weaker demand), and Michael Gove looks set to cut housebuilding targets, that just allows Starmer to project Labour as the party that will streamline planning and get Britain building again.
The latest polls show just how big a hole Sunak is in too. YouGov gives him his lowest ever net favourability score of -49 – a 10-point drop from late November and comparable to Boris Johnson’s at the time of his resignation. For the first time, he is as unpopular as his party.
Crucially, just 15 per cent expect to be better off next year overall and 40 per cent expect to be worse off. When voters just aren’t feeling the Tories’ promises, those are the numbers that ought to worry “statto Sunak” and his MPs most.
login
who are we?
contact us
qosheapp
Toi Staff
Gideon Levy
Belen Fernandez
Andrew Mitrovica
Mort Laitner
Rami G Khouri
Ali Fathollah-Nejad
Nikkei Editorial
visit website
